For the past five years, business-to-business (B2B) commercial card usage in the U.S. has been on the rise. A benchmark survey predicted the purchasing card market in North America would grow by a compound annual rate (CAGR) of nine percent from 2014 to 20181. Another study forecast commercial card purchase growth of 10% in the U.S. this year alone.2
This trend comes as buyers and suppliers have begun to overcome concerns surrounding commercial card adoption. In the past, many businesses resisted card solutions because they perceived acceptance as complicated and inefficient, as well as costly. There was also concern that shifting purchases to cards would eliminate discount pricing already in place. And many businesses remained apprehensive about keeping card information and sensitive data safe.
Electronically generated Virtual Card Numbers (VCNs) are also increasingly being adopted as a highly effective purchasing tool. Studies have shown that virtual card spend increases rapidly as buyers shift suppliers away from checks and into electronic options. For new virtual card programs, spend increases from 57% of traditional purchase card spending in the first year to nearly 200% by year five.3
Advantages of Commercial Card Programs
Commercial card programs offer corporates a number of important advantages. In addition to eliminating costly and cumbersome paper checks, card programs provide treasury professionals with greater control of, and visibility into, spend. Such programs can improve cash flow by extending days-payable-outstanding (DPO) and allowing for better management of vendor expenses and employee purchases with assigned spending limits.
The visibility offered by card programs provide invaluable insights into how budgets are being impacted and how payment schedules affect overall working capital, enabling more informed business decisions. An effective card program can also simplify account management, reconciliation, and reporting, while reducing the risks associated check fraud, wire fraud and ACH debit fraud.
For suppliers, the benefits of commercial cards are equally impressive. Card programs can help to accelerate collections by decreasing day-sales-outstanding (DSO), improving the order-to-cash cycle and ensuring that payments are guaranteed. In fact, cards enable an order-to-cash cycle that is 14 times shorter than that of checks, ACH, and wire.4 Such programs drive tremendous efficiency by automating payment processes, reducing paper and manual treasury tasks. Beyond this, card programs can reduce bad debt by lowering the incidence of non-payment and decreasing reliance on trade credit.
From a strategic standpoint, commercial card programs offer suppliers an invaluable opportunity to strengthen their business partnership with buyers. In many cases, adopting card programs can be a key step in becoming a “preferred” supplier within industry, and an effective means for enhancing a competitive position with buyers.
The Fifth Third Commercial Card Advantage
Fifth Third Bank offers buyers and suppliers a commercial card solution that delivers tremendous business advantages. The Fifth Third Commercial Card program allows treasury professionals to consolidate vendor payments and business expenses into a single account. With better visibility in payments, treasury is empowered to improve cash flow management and reduce costs. Furthermore, our card program enables businesses to take advantage of more detailed financial data, allowing for greater treasury efficiency. Armed with this information, treasury is in a better position to negotiate improved terms with vendors, and maximize DPO and cash flow. Corporates can easily manage their cardholder accounts through our convenient online portal, Fifth Third DirectSM.
For corporates interested in leveraging virtual card numbers (VCNs) to conduct efficient, secure vendor payments, Fifth Third’s ePay solution is the answer. ePay enables immediate, next business day, or scheduled requests for VCNs. This solution allows treasury to send payment files from an ERP system to be settled to virtual card accounts. ePay is an effective tool for controlling the timing of settlements, and better managing and tracking payment processes through the web application’s approval workflows. Using VCNs, treasury can reduce exposure to fraud with transaction-level controls.